Embecta (EMBC) - 2023 Q4 - Annual Report

Financial Performance - Revenue for the year ended September 30, 2023, decreased by $8.7 million, or 0.8$1,120.8 million from $1,129.5 million in 2022[196] - Gross profit decreased by$25.0 million to $749.9 million, with gross profit as a percentage of revenue at 66.9$88.1 million to $221.5 million from$309.6 million[195] - Net income decreased by $153.2 million to$70.4 million from $223.6 million, resulting in a diluted net income per share of$1.22 compared to $3.89 in the previous year[194][195] Expenses - Cost of products sold increased by$16.3 million, or 4.6%, to $370.9 million, with cost of products sold as a percentage of revenues rising to 33.1$46.5 million, or 15.8%, to $341.3 million, primarily due to increased compensation and benefit costs[200] - Research and development expenses increased by$18.3 million, or 27.4%, to $85.2 million, attributed to investments in new products[202] - Other operating expenses rose to$99.4 million from $44.7 million, primarily related to accounting, auditing, and legal services[206] Foreign Currency and Geopolitical Impact - The company faced a$26.5 million negative impact on revenues due to foreign currency translation from the strengthening of the U.S. dollar[196] - The company continues to monitor geopolitical conflicts, including the situation in Ukraine and Israel, with no material impact on operations reported as of November 29, 2023[192] Interest and Taxation - Interest expense increased to $107.0 million for the year ended September 30, 2023, from$46.2 million in 2022, primarily due to longer debt outstanding and higher interest rates[207] - Other income (expense), net decreased by $2.0 million to$(8.8) million for the year ended September 30, 2023, compared to $(6.8) million in 2022[208] - The effective income tax rate increased due to a valuation allowance against interest expense carryforwards and higher U.S. tax on foreign earnings[209] - As of September 30, 2023, the company recorded deferred taxes on undistributed earnings of foreign subsidiaries, with an anticipated$18.0 million reduction in income tax expense in fiscal year 2024[210][211] Cash Flow and Debt - Cash and cash equivalents were $326.5 million as of September 30, 2023, a decrease from$330.9 million in 2022, with net cash provided by operating activities at $67.7 million[225] - Net cash used for investing activities was primarily$26.5 million for capital expenditures to support business expansion[226] - Total principal debt outstanding as of September 30, 2023, was $1,635.8 million, with long-term debt at$1,593.9 million[218] - The weighted average cost of total debt was 7.1% as of September 30, 2023, with short-term debt representing 0.6% of total debt[219] Contracts and Obligations - The company has contractual obligations of approximately $227 million for purchase obligations and$82 million for lease obligations as of September 30, 2023[228] - The company entered into a lease agreement for approximately 278,000 square feet of manufacturing space for an initial term of ten years[220] Tax and Accounting Practices - The company incurs stock-based compensation expenses over the requisite service period based on the grant date fair value of awards, utilizing the Black-Scholes-Merton option-pricing model[232] - The company recognizes deferred tax assets and liabilities for expected future tax consequences of temporary differences between financial statements and tax basis of assets and liabilities[233] - The company evaluates factors such as prior earnings history and expected future earnings to determine the necessity of valuation allowances for deferred tax assets[234] - The company establishes reserves for uncertain tax positions based on its interpretation of tax laws and regulations, recognizing interest and penalties as part of income tax expense when applicable[236] Risks and Challenges - The company is exposed to foreign currency exchange risks that could adversely affect its financial condition and results of operations[243] - As of September 30, 2023, the company's Term Loan interest rate is set at 300 basis points over SOFR, with a 100 basis points change impacting interest expense by $9.4 million annually[246] - The company faces risks related to competitive factors, including new drug therapies for diabetes and pricing pressures from lower-cost producers[240] - The company may encounter challenges in completing strategic partnerships and acquisitions that could accelerate growth and access innovative technologies[246] - The company is subject to risks from changes in laws and regulations affecting its domestic and foreign operations, including healthcare and tax policies[246] - The company acknowledges that actual results may differ materially from forward-looking statements due to various risks and uncertainties[241]